Value Vs. “Values”
Hohn is rolling out his green efforts as the asset management industry struggles to find a way to address climate change while delivering the kind of returns investors demand. Index fund giants have long used an investing style dubbed ESG—based on environmental, social, and governance criteria—but they maintain that investment stewardship is ultimately about maximizing value, not imposing social “values” on companies.

But amid mounting anxiety about record-breaking global temperatures, Larry Fink, chief executive officer of BlackRock Inc., acknowledged on Jan. 14 that climate change has become a “defining factor” in the long-term prospects of companies worldwide. BlackRock, the world’s biggest investment firm, with $7.4 trillion in assets, will start cashing out of firms with “high sustainability-related risk” and plans to make emissions a fundamental consideration in investments.

Tackling global warming will test Hohn’s approach as never before. First, he’s betting that companies will heed his demands, and then that he won’t dampen returns by destabilizing companies that reject them. In tying TCI’s fortunes to a climate change agenda, Hohn is wagering that the economic risks from the mounting crisis are so great that it would be foolish not to spur companies to get real on emissions.

“Green investing and hedge funds are not terms many investors would put in the same sentence,” says Marc de Kloe, a partner at Theta Capital Management in Amsterdam and an investor in TCI’s fund. “However, we have been proponents of the idea that hedge funds are in some way best suited to implement strong green policies, given their unconstrained nature and ability to deploy activist tactics.”

Climate change activists say it’s about time, given the confusion around ESG, which has become a megatrend in the investing world. More than $30 trillion was held in assets classified as sustainable or green in 2018, up more than a third from 2016, according to the Global Sustainable Investment Alliance, a group that tracks money flows.

But critics contend that ESG is often little more than a public relations gimmick to “greenwash” a firm’s credentials. There’s no standard definition of ESG, so it’s virtually impossible to compare companies against a universal benchmark. Moreover, subscribing to the approach doesn’t mean institutional investors will actually pressure portfolio companies to reduce emissions. In November, ShareAction, an advocacy group in London, released a study finding that Capital Group, T. Rowe Price, and BlackRock supported fewer than 7% of the shareholder resolutions on climate risks in 2017 and 2018, even though they all subscribe to ESG.

While it might be odd to look to hedge funds for support in the fight against climate change, that’s where the story is going, says Catherine Howarth, CEO of ShareAction. “Historically, large institutional investors have encouraged companies to do the right thing in vague, bland terms, and the whole asset management field is finally waking up,” Howarth says. “Now we need activist investors like Chris Hohn to push like crazy for what they want.”

This article was provided by Bloomberg News.

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